Worked Examples and Checklists
Insurance inside super: what default cover costs, when it stops and how to review it
How life, TPD and income protection cover inside Australian super works, what premiums cost your balance, the inactivity, under-25 and $6,000 rules, and a review checklist.
Most super funds automatically give members life (death) cover and total and permanent disability (TPD) cover, and some add income protection, with premiums deducted from your super balance. The cover is convenient and often available without medical questions, but it reduces your retirement savings every week, may not match what you need, and it ends in set situations: cover generally stops on an account that has received no contributions for 16 months, and new members under 25 or with a balance under $6,000 do not get default cover unless they opt in (or work in a dangerous occupation where the fund provides it). Review your cover at least once a year and always before you close or roll over an account.
This guide is part of the fund comparison checklist section. Premiums below are illustrative, not any insurer's rates. General information only, not financial or insurance advice.
The three types of cover
| Cover | Pays | Usually ends (in super) | Watch for |
|---|---|---|---|
| Life (death) cover | A lump sum to your beneficiaries if you die; often also on diagnosis of a terminal illness | Commonly around age 70 | Cover amount may fall with age under default "age-based" scales |
| Total and permanent disability (TPD) | A lump sum if you are permanently unable to work under the policy definition | Commonly around age 65 | The definition: "any occupation" versus "own occupation" |
| Income protection | A monthly benefit, typically up to a share of your income, if illness or injury stops you working | Depends on policy | Waiting period before payments, benefit period (e.g. 2 years or to age 65) |
Moneysmart notes that TPD cover in super usually ends at 65 and life cover at 70. Within super, the law restricts cover to types consistent with the conditions of release, which is why some features available outside super (such as "own occupation" TPD in some cases, or trauma cover) are not offered inside it.
What premiums cost your balance
Premiums are not a fee, but they come out of the same account. Illustrative member, age 40:
- Default death and TPD: $6.50 a week = $338 a year
- Income protection: $4.00 a week = $208 a year
- Total premiums: $546 a year
If this member also pays $700 in fees, insurance adds about 78% to the annual cost of the account. Over 20 years, $546 a year that stayed invested at an illustrative 6% return would be worth about $20,000. That is the cost of the cover in retirement savings, and it is worth paying if you need the cover — but not twice in two accounts.
Use the annual super fee calculator, which has a field for premiums, to see the combined cost.
When cover starts and stops automatically
These rules were introduced by the Protecting Your Super and Putting Members' Interests First reforms.
- Inactive accounts: funds must cancel cover on accounts that have received no contributions or rollovers for 16 months, unless you tell the fund in writing that you want to keep it. The fund must warn you beforehand.
- Under 25: new members under 25 do not get default cover unless they opt in.
- Low balance: members whose balance has not reached $6,000 do not get default cover unless they opt in. If you already have cover and your balance later falls below $6,000, you usually keep it.
- Dangerous occupations: some funds provide default cover to members in dangerous occupations even if under 25 or with low balances, with an option to cancel.
- Age limits: cover typically stops at the age set in the policy.
Cover and consolidation
Rolling an account out of a fund usually closes it and ends its insurance. Before you consolidate:
- List the cover in each account.
- Decide how much cover you need in total.
- Ask the fund you are keeping whether it can transfer cover from the other fund, or provide new cover, and what health questions or exclusions apply.
- Wait until the new cover is confirmed in writing before closing the old account.
See consolidating super through myGov.
Inside or outside super: a quick comparison
| Inside super | Outside super (retail policy) | |
|---|---|---|
| Who pays | Premiums from your super balance | From your take-home pay |
| Underwriting | Default cover often without medical checks | Usually full underwriting |
| Cost | Often lower due to group buying | Varies; can be higher |
| Tax | Premiums paid from contributions taxed at 15% | Income protection premiums may be deductible personally |
| Flexibility | Limited definitions and features | Wider range of definitions and extras |
| Effect on retirement | Reduces your balance | No effect on super |
Many people use a mix. A licensed financial adviser can compare cover inside and outside super for your situation.
Annual insurance review checklist
- Find the insurance section of your annual statement for each account.
- Note each cover amount and weekly premium.
- Check the TPD definition and any exclusions, such as for pre-existing conditions.
- Check whether a loading applies (for example for smoking or a risky job).
- Check your occupation category: some funds charge less for office-based work if you tell them.
- Work out your needs: debts, dependants, years of income to replace.
- Decide whether to increase, reduce or cancel cover, or keep cover in one account only.
- If you want to keep cover on an inactive account, tell the fund in writing before the 16-month point.
Premiums interact with fee comparisons; the fee drag worked example shows how ongoing deductions compound, and if you are nearing 60 see preservation age and conditions of release for when cover and access rules change.
Frequently asked questions
Can I cancel insurance in super?
Yes, you can usually cancel or reduce it by contacting your fund. Once cancelled, getting it back may require health questions, so consider your needs first.
Why was my insurance cancelled without my agreement?
Usually because the account had no contributions for 16 months, as the law requires. The fund should have written to you. If you think the fund made an error, complain to the fund and then to AFCA; see complaints to your fund and AFCA.
Does my fund's insurer decide claims?
The insurer assesses the claim, and the trustee must also act in members' interests in handling it. Both can be the subject of a complaint.
How is a TPD payment taxed?
Tax depends on your age and the components of the payment. Check the ATO's guidance or ask a registered tax agent before you claim.
Official sources
- Moneysmart — insurance through super, life insurance calculator
- ATO — tax on super insurance benefits
- APRA — insurance in super prudential standards
- AFCA — complaints about insurance claims and cancellations
